Bail-Out III coming to a Congress near you?

[Nethead]

"If I'm funding your existence, I call the shots."

ifcar:  Totally true.  Ownership of a business don't mean shit if you ain't got the dough to keep it running day-to-day.  Without that dough, you got a boarded up set of buildings with weeds growing in the parking lots and a "for sale" ad in the commercial real estate section of the Classifieds...

[GoCougs]

But here's the question: Did they do a good job? That's what we should judge this against, based on what could have happened.

Both are impossible to judge. You have to leave the decision of compensation in the hands of the people who own the company.

Like I said, I'm not defending manipulating capitalism, but it was going to happen anyway. Was it done well, though?

This I don't know.

[the Teuton]

ifcar:  Totally true.  Ownership of a business don't mean shit if you ain't got the dough to keep it running day-to-day.  Without that dough, you got a boarded up set of buildings with weeds growing in the parking lots and a "for sale" ad in the commercial real estate section of the Classifieds...

But there's a difference in all of this. The government bought GM's debt, yet they're calling shots like they bought GM's equity. Or did they buy both?

There's a really questionable line here of what kind of financing operation the government did. It doesn't resemble our capitalist notions at all.

[GoCougs]

But there's a difference in all of this. The government bought GM's debt, yet they're calling shots like they bought GM's equity. Or did they buy both?

There's a really questionable line here of what kind of financing operation the government did. It doesn't resemble our capitalist notions at all.

In reality, when you get a mortgage, the bank has rules on how you can use the home; must have insurance, can't do certain activities (no commercial businesses), and all sorts of stuff.

However, the bank can't come to arrest you if you don't take the mortgage, can't come to arrest you if you don't pay up, can't come to arrest you if you break its rules of ownership, etc.

That is the principal difference between the two scenarios; but to the socialist that is academic, as to the socialist, the government's power to arrest you is why it is the only true moral force.

[r0tor]

bleh... rattner only saw what was going on after everyone stopped caring as the writing was on the wall that the companies were done for

To quote myself... what the fudge did he expect the mood to be like when he moves into a company where thousands of people were let go, the white and blue collar emplyees that remained took wages cuts, upper management had packed their bags, and they knew they were gonig to be taken over????

[TBR]

There's a right way to go about things and wrong way. The right way, in this instance, was to approach the GM board, and lay out conditions that more money would yield.  And you know what, the board would have accepted those conditions, and the money that came with it. This is what GWB's administration did (though it was simply a stop-gap measure, but there wasn't much else a lame duck President could have done). They probably would have been more than happy to work hand in hand with the government to formulate a plan for bankruptcy and a more viable recovery plan. The wrong way was to go in, make-up your own plan that basically ignored bankruptcy laws in order to increase your power and the power of one of your strongest voting blocks, and then literally (and illegally) force it on them.

I wonder how many former GM stock and bondholders have sued the government so far...

[TBR]

http://www.autoblog.com/2009/10/22/report-pay-czar-planning-up-to-90-compensation-cuts-for-top-au/



That's the way to motivate people. They might as well retire. Hell, some of them would probably make more money if they did so.

[SVT666]

http://www.autoblog.com/2009/10/22/report-pay-czar-planning-up-to-90-compensation-cuts-for-top-au/



That's the way to motivate people. They might as well retire. Hell, some of them would probably make more money if they did so.

90%???  That means Fritz Henderson could take a pay cut from $1.3 Million to $130,000?  These guys are nuts.  Who's going to take that kind of pay cut?  My sister-in-law who is a VP at a pharmaceuticals company won't even get out of bed for $130,000.  

[the Teuton]

90%???  That means Fritz Henderson could take a pay cut from $1.3 Million to $130,000?  These guys are nuts.  Who's going to take that kind of pay cut?  My sister-in-law who is a VP at a pharmaceuticals company won't even get out of bed for $130,000. 

Talent goes where the money is, and if you've proven yourself as a talent at a company, you deserve much more than $130k to run the whole damn show.

[FoMoJo]

Mulally came on in 2005. The Way Forward and One Ford plans were all him.

So yeah, he probably deserves his $19 million/year if he can get them back to profitability.

Not to nitpick or argue, but only to provide facts...

Mulally joined Ford in September 2006 Alan Mulally

The Way Forward was announced in January 2006 by Bill Ford The Way Forward

Ford mortgaged its assets in November 2006 Ford Mortgages Assets to Pay for Overhaul due largely to the efforts of Don Leclair who retired last year.

The information is in the links for those interested.

As for Mulally, he was the outsider that Ford needed at the time.  As well, I have great admiration for him in the role he has played in continuing the restructuring process at Ford and harnessing a somewhat fractious executive team.  Do I think he is worth the money?   Alan Mulally The $2,000,000 salary, sure.  The rest?  Maybe, depending on his performance.  It's interesting comparing him to Mark Fields who, likely, will get the job in a couple of years.  However, it was unfortunate, during the exercise of determining who would be the new CEO back in 2006, that they lost such valuable players as Phil Martens.  The way the game is played, someone must be called leader.  However, any one of them could do the job because the strength comes from the players not just the leader.

[the Teuton]

Thank you for the clarification.

[FoMoJo]

http://www.autoblog.com/2009/10/22/report-pay-czar-planning-up-to-90-compensation-cuts-for-top-au/



That's the way to motivate people. They might as well retire. Hell, some of them would probably make more money if they did so.

Some more information Top execs at Chrysler, GM to see compensation cuts.  The numbers don't seem to jibe.

At General Motors, cash compensation for the five most senior executives and the 20 next highest-paid employees will drop $3.9 million ? or 31% ? on an annualized basis, compared to 2008. In terms of total compensation, the cut will be a total of $5.6 million or slightly less than 25%.

At GMAC, cash compensation will drop $10.4 million or 50% for its top employees; total compensation, $413 million or more than 86%.

At Chrysler Group LLC, cash compensation will drop $1.5 million or 18% compared to 2008, with total compensation falling $2.1 million or 24%.

At Chrysler Financial, cash compensation will drop $4.3 million or 30%; total compensation will fall $8.1 million or 56%.

[TBR]

90%???  That means Fritz Henderson could take a pay cut from $1.3 Million to $130,000?  These guys are nuts.  Who's going to take that kind of pay cut?  My sister-in-law who is a VP at a pharmaceuticals company won't even get out of bed for $130,000.  

The way I understand it everyone isn't getting a cut of 90%, rather everyone is getting cut down to at most $200,000. Presumably this means Fritz will be paid $200,000. As FoMoJo post reveals, this only includes cash compensation, which is a bit of a relief though still quite worrisome. GM is a long way from becoming public again, so any stock will be worthless. Same with Chrysler (though what's to stop Fiat from paying executives from their own coffers?).

I'd imagine that the only sound to be heard on the top floor of these companies is the flurry of typing as executives write up letters of resignation. At least that's what I'd be doing.

It's especially absurd for the guys working for the banks. There are entry level people making $200k in that business.

[the Teuton]

There are people on these forums who make more than that and aren't even the top dogs in their companies. Am I allowed to call this plan absurd?

As we've learned in finance, though, the primary goal of the agent is to maximize stakeholder equity. So if there are no stakeholders (well, there are, but they already got the shaft), whose equity are they fluffing?

[TBR]

There are people on these forums who make more than that and aren't even the top dogs in their companies. Am I allowed to call this plan absurd?

As we've learned in finance, though, the primary goal of the agent is to maximize stakeholder equity. So if there are no stakeholders (well, there are, but they already got the shaft), whose equity are they fluffing?

The stakeholders are the federal government, the UAW, and the CAW. Organizations who interests lay else where than maximizing stockholder's equity. Extraordinarily worrisome considering the only way we are getting our money back is with a successful IPO of the new GM (I am kind of curious to see how that plays out, if it ever happens that is).

[Rich]

For those of you that think the companies should still be paying the same compensation to the guys that ran the company into the ground, I say eat shit

They should all be fired.  If the government weren't around they'd be out of a job anyway. 

[TBR]

For those of you that think the companies should still be paying the same compensation to the guys that ran the company into the ground, I say eat shit

They should all be fired.  If the government weren't around they'd be out of a job anyway.  

Fresh blood would be great, but they sure as hell aren't going to attract it with a $200k cap. And, the guy that ran the company into the ground (well, one of a long line of bad CEOs) was fired.

I am fine with cuts, but 90% is fucking absurd. Either fire them or don't. Problem is, that if they do fire them, well no one better is going to want to work for that. Mullaly makes $13 million. His salary is over $2m. GM needs that grade of talent, but no way will the government let them have it. As I mentioned in the first page, the job also has other, significant cons, chiefly facing the intense scrutiny of every single American who has the slightest clue what is going on. The people GM has are the best they will be able to get, short of a white knight riding in and making a huge sacrifice for patriotic reasons or whatever.

[Rich]

btw, I think salary caps are shit(for new hires), but I don't think the same old crew should be making the same old money.  Fire them or make them work for beans to see how dedicated they are.  If other companies think that somone that helped run the company into the ground is worth anything then let them wither and die too

[TBR]

btw, I think salary caps are shit(for new hires), but I don't think the same old crew should be making the same old money.  Fire them or make them work for beans to see how dedicated they are.  If other companies think that somone that helped run the company into the ground is worth anything then let them wither and die too

Just because someone was present at a company when it went down doesn't mean they helped drive it into the ground. And, yes, that applies even on an executive level. There's a lot of deceit on the part of the press trying to sensationalize this by blaming company failures on everyone and anyone that works for the company. I mean you'd think that AIG's entire business was a failure, when in reality not only were parts of it  profitable, but some of them were sold/spun off once the shit hit the fan with the derivatives (that's where 21st Insurance came from). It's people from those other, successful units that are left to clean up the mess, but it is in the best interest of both politicians and the press to pretend otherwise.

Furthermore, let's just think about what's happening here. You have someone who was paid $800-1000k per year and wasn't doing all that well. Who in their right mind would think that cutting them down to $200k makes any sense? If someone is calling it in at 7 figures, how is low 6 figures going to get them on the right track? Either fire them or restructure compensation so that most of their cash income comes from performance-based incentives. As an outside observer, it seems like one of GM's problems was not their executives, but how they were compensated. Even the best people aren't going to put forward quality work if they aren't financially rewarded for it.

BTW, the former VP of marketing at GM got a job within a week of announcing his departure from GM (based on the time line I think he willfully resigned). He is now in charge for marketing at All State. A smaller company, but a quite profitable one and, in my eyes, a step-up.

[GoCougs]

For those of you that think the companies should still be paying the same compensation to the guys that ran the company into the ground, I say eat shit

They should all be fired.  If the government weren't around they'd be out of a job anyway. 

But you also have to ask yourself, if you think it is so obvious, why do stock holders and BoD keep authorizing compensation of that magnitude?

The reality is that Detroit was on the decline and nothing would have stopped it. So the real question is/was, What is the proper measure of "performance" for an exec in such a situation? A: to minimize the fallout.

The salary caps, while not only being immoral and straight out of Marxist ideology, will only hurt organizations in the long run: less money = less talent.

[Nethead]

But there's a difference in all of this. The government bought GM's debt, yet they're calling shots like they bought GM's equity. Or did they buy both?

There's a really questionable line here of what kind of financing operation the government did. It doesn't resemble our capitalist notions at all.

the Teuton:  Clearly "our capitalist notions " got GM into this predicament in the first place--along with Chrysler, much of the financial industry, yada yada yada...

Equally clearly, the governmental policies that had been utilized in this millenium could not possibly cope with such a financial catastrophe.

New methods of dealing with rapidly-developing crises (as opposed to the methods employed to deal with "Katrina", for instance) were clearly required here--and the taxpayers demanded it with their votes last November, for those who failed to come up to speed quickly.

If capitalism can't be flexible, capitalism has a flaw that may prove fatal.  It's very "capitalist" to take any approach that works--and what the country needs are approaches that work, not adherence to the "rules" of politico-economic semantics.  

The welfare of the citizens is the single most important endeavor of good government.  Anything less is failure.
   

[Nethead]

There's a right way to go about things and wrong way. The right way, in this instance, was to approach the GM board, and lay out conditions that more money would yield.  And you know what, the board would have accepted those conditions, and the money that came with it. This is what GWB's administration did (though it was simply a stop-gap measure, but there wasn't much else a lame duck President could have done). They probably would have been more than happy to work hand in hand with the government to formulate a plan for bankruptcy and a more viable recovery plan. The wrong way was to go in, make-up your own plan that basically ignored bankruptcy laws in order to increase your power and the power of one of your strongest voting blocks, and then literally (and illegally) force it on them.

I wonder how many former GM stock and bondholders have sued the government so far...

TBR:  The bondholders, after all, had invested in two companies that failed completely.  Losing your proverbial shirt is not illegal and it is certainly not unconstitutional.  Their only way to come out without losing everything was to terminate the corporations and sell off their assets (for ten cents on the dollar if they got really, really lucky--probably much less in the depressed commercial property market of 2009), which woulda resulted in 2.4--3 million citizens losing their jobs by the time all the GM & Chrysler subcontractors either went belly-up or cut back to sustainable staffing levels in an industry without contracts from GM & Chrysler.

Since at least GM had no money for the following month's Payroll (I never heard whether Cerberus had sufficient funds to make Payrolls in the early months of '09, although they may have had), action had to be taken right away.  Over all, Bail-Outs 1 & 2 seem to have worked, if not with finesse.  At the very least it buys time for the workers to find new jobs and/or to get training for new jobs so that they'll be better prepared for The Last Pink Slip if & when...

'Sorry for the investors, but the loss of 2.4--3 million jobs would have cost the country a helluva lot more than the losses of these investors in the bond market. There were no win-win solutions.  'Better to go with an inequitable lesser loss than with a fair and equitable tragedy, eh?

[Tave]

We had a really cool guest lecturer yesterday from UChicago Law on executive compensation, that guy was awesome.

[FoMoJo]

We had a really cool guest lecturer yesterday from UChicago Law on executive compensation, that guy was awesome.

Who was he an what was his message?

[FoMoJo]

But you also have to ask yourself, if you think it is so obvious, why do stock holders and BoD keep authorizing compensation of that magnitude?

Likely, because they want a CEO who will cater to their lust for dividends; be it only a short-term venture.

The reality is that Detroit was on the decline and nothing would have stopped it. So the real question is/was, What is the proper measure of "performance" for an exec in such a situation? A: to minimize the fallout.

What era are you talking about?  There were a number of reasons, over the past 50 years, which were responsible for the decline of the NA auto industry.  Perhaps they can all be summed up by...resistance to change; even the wage/price spiral that took place, especially, during the '60s and '70s.

The salary caps, while not only being immoral and straight out of Marxist ideology, will only hurt organizations in the long run: less money = less talent.

It would be hard to imagine less talent than that which has been exercised, not only in the NA auto industry, but other industries over the last few years; notwithstanding the financial sector.  When the bottom line is to make money without regard to the long term, it's an invitation to disaster; which has now been realized.  This could be partly, or largely, due to business influence on government, lobbiests, who pay to enact/revoke legislation to prevent change and stifle competition; like an albatross hung on the neck of the free market.

[GoCougs]

Likely, because they want a CEO who will cater to their lust for dividends; be it only a short-term venture.

What era are you talking about?  There were a number of reasons, over the past 50 years, which were responsible for the decline of the NA auto industry.  Perhaps they can all be summed up by...resistance to change; even the wage/price spiral that took place, especially, during the '60s and '70s.

It would be hard to imagine less talent than that which has been exercised, not only in the NA auto industry, but other industries over the last few years; notwithstanding the financial sector.  When the bottom line is to make money without regard to the long term, it's an invitation to disaster; which has now been realized.  This could be partly, or largely, due to business influence on government, lobbiests, who pay to enact/revoke legislation to prevent change and stifle competition; like an albatross hung on the neck of the free market.

My point was neither you nor detractors have either context or material standing to make that call.

And let's not kid ourselves - unions killed Detroit, as they did to many other product-related industries.

[NomisR]

Perhaps they can all be summed up by...resistance to change; even the wage/price spiral that took place, especially, during the '60s and '70s.

That's the problem with a lot of American companies today, the failure to adapt to the changing environment.  Most companies really got too big and too comfortable at where they were at and different parts of the company become compartimentalized and only looking out for their own well being.   Even the company I'm in, just trying to fix a little depart or a station, you get a huge resistance to change, just trying to implement something new.. oh god.. it's really .. this is just with the non-union part of the company

So I can imagine what it would be like with something as big and cumbersome with a lot of legacy baggage and unions, it's like the Titanic trying to avoid the iceberg with the oversized ship and undersized rudder.

[Tave]

Who was he an what was his message?

Todd Henderson, teaches corporate law @ UChicago. As you would probably infer from his position, he is strongly pro-market.

His most interesting point, IMO, was the assertion that the focus of the bail-out inquiry and oversight has drifted beyond what the problem is and what the efforts were intended to address.

There is an idea floating about that executive compensation measures will protect shareholder interests, when, in fact, the shareholders themselves drive CEOs to take the risks in question.

The problem was fundamentally a financial question, but we have since included corporate entities which are obviously not financial institutions into the "solution."

If there is a problem, it is in banking. Banks, to address the earlier point, are said to be responsible to their shareholders, but this is empirically untrue. Banks are ultimately accountable to the public, because there is no private money supply. The Federal government insures the bank's money. It ultimately backs financing.


Then, as to be expected, he had a lot to say about the economic realities of compensatory czars and the inherent flaws of "men of system." Even the smartest man in the world won't be successful at determining optimum executive salaries (or anyone else for that matter) at the various companies.

[Tave]

the Teuton:  Clearly "our capitalist notions " got GM into this predicament in the first place--along with Chrysler, much of the financial industry, yada yada yada...

It's a capitalist notion to secure mortgages for people who cannot afford to pay them?

If capitalism can't be flexible, capitalism has a flaw that may prove fatal.  It's very "capitalist" to take any approach that works--and what the country needs are approaches that work, not adherence to the "rules" of politico-economic semantics.  

Ha. As if the actions of the current administration are somehow beyond ideology.

[FoMoJo]

Todd Henderson, teaches corporate law @ UChicago. As you would probably infer from his position, he is strongly pro-market.

His most interesting point, IMO, was the assertion that the focus of the bail-out inquiry and oversight has drifted beyond what the problem is and what the efforts were intended to address.

There is an idea floating about that executive compensation measures will protect shareholder interests, when, in fact, the shareholders themselves drive CEOs to take the risks in question.

The problem was fundamentally a financial question, but we have since included corporate entities which are obviously not financial institutions into the "solution."

If there is a problem, it is in banking. Banks, to address the earlier point, are said to be responsible to their shareholders, but this is empirically untrue. Banks are ultimately accountable to the public, because there is no private money supply. The Federal government insures the bank's money. It ultimately backs financing.


Then, as to be expected, he had a lot to say about the economic realities of compensatory czars and the inherent flaws of "men of system." Even the smartest man in the world won't be successful at determining optimum executive salaries (or anyone else for that matter) at the various companies.

Interesting stuff.  There are many points of view regarding the past, current and future direction of the economy and what part, if any, the government should/can play.  I like watching early morning CNBC where they have as guests a collection of business and financial experts as well as politicians of various hues.  My favourites, so far, are Warren Buffett and T. Boone Pickens.  The politicians, generally, just spin the party line but, occasionally, there are some sensible ideas from both sides.